TransferWise wants to be the Skype of currency exchange

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TransferWise launches its online currency exchange today, which hopes to give the banks a run for their money, along with disrupting the consumer-end of the money exchange market as a whole. The headline proposition is that the platform gives anyone access to the same mid-market exchange rates that banks get on their interbank market, with TransferWise charging a flat fee of £1 for each transaction regardless of the amount being exchanged. That’s potentially a big deal.

But what’s equally notable is the company’s founders, which includes Skype employee number one Taavet Hinrikus.

He spent 7 years at the VoIP company, most recently as Director of Strategy, as well as being an Angel investor in a number of other prominent and upcoming startups including TweetDeck, Mendeley, wikimart.ru, and blip.tv. TransferWise’s other founder is Kristo Käärmann who has a direct financial services background with Deloitte and PricewaterhouseCoopers.

Naturally, Hinrikus says he wants TransferWise to “do to currency exchange what Skype did to telecommunications.” It’s a nice line but in this case there appears to be meat on the bone. Traditionally, consumers pay between 3-6% for foreign currency payments at through their bank. In other markets that have moved online, cutting out the middle person (for the most part) has “brought down costs almost everywhere you look”, notes Hinrikus.

To that end, TransferWise, which is licensed by the UK Financial Services Authority (registered as Exchange Solutions Ltd.), facilitates money transfers at “global mid-market rates” as reported by Bloomberg, XE and others. It does this by matching those that need to convert money each way – peer to peer, if you will, or several people – although the transfer is to and from TransferWise. At launch, the company enables exchanges between the British Pound and Euro, with more currencies to follow.

TransferWise’s direct and indirect competitors include Moneybookers and PayPal at the low-end, or for larger amounts currency brokers like HiFX, as well as other upstarts such as CurrencyFair, and the banks of course. The company remains self-funded by Hinrikus and Käärmann.

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Crunchbase

OverviewTransferWise lets expats, foreign students and businesses move money globally. The firm's pricing and operating model are a substantial departure from standard practice in the money transfer sector, providing customers with a lower-cost alternative to traditional means of moving money internationally.
TransferWise was founded in London in March 2010 by Taavet Hinrikus and Kristo Kaarmann. Taavet …

Thanks for pointing this out – indeed there is some similarity with Ubuntu logo. We had not see Ubuntu logo before. I’m glad that we are in different businesses, so this should not be a problem to anyone.

http://paulgailey.com Paul Gailey

bit a favicon mismatch to your logo also. – this service looks very appealing, just wish i’d known about it a few days ago!

William D

Looks interesting! I am paid in Euros, but still have costs coming frmo my UK bank account in sterling. It would be nice, for once, not to be scammed by the banks!

Chris

This is a great idea. One of those I can’t believe this hasn’t been done before moments.

http://topsy.com/eu.techcrunch.com/2011/01/24/transferwise-wants-to-be-the-skype-of-currency-exchange/?utm_source=pingback&utm_campaign=L2 Tweets that mention TransferWise wants to be the Skype of currency exchange -- Topsy.com

If they only charge £1 per transaction and that’s the only source of their revenue, it’s gonna take a whole load of adoption to get anywhere near a profitable company. Interesting to watch.

http://twitter.com/transferwise TransferWise

£1 is enough to cover our basic costs to start. We’d like to think of this as a barebones currency exchange service – same that Easyjet did to flying, no frills simple service that works.

http://accmanpro.com/2011/01/24/can-transferwise-make-a-real-difference/ Can Transferwise make a real difference? AccMan

[…] that Taavet Hinrikus, Skype employee no.1, along with Kristo Käärmann, ex-Deloitte and PwC have established Transferwise, a currency exchange service: …which hopes to give the banks a run for their money, along […]

Lakehache

About time someone did this. The baks charge INDECENT fees for this currency exchange. I’ll definitely be keeping an eye on this!

Anonymous

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http://WordSkill.com donnacha | WordSkill

Great idea, I am very likely to use this, especially if they introduce the US dollar as an option.

Is it really true that no-one else is doing this? I’m surprised.

Guest

Banks are certainly charging incredible fees. There is another company I have found that is already charging very low margins, seem better than paypal, moneybookers, currencyfair or hifx and doesnt need you to wait for counterparts for the exchange: http://www.peerTransfer.com

The problem, which this article doesn’t really explain, is that you are not guaranteed the exchange rate or the timing. Transfer point matches your currency exchange with somebody else who wants to trade in the other direction (eg if I want to buy Euro’s with my GBP they need to find someone who wants to buy GBP with their Euro’s). The market could move significantly in the meantime, and you could imagine that very often they will have much more demand from one side or the other (especially if they don’t balance their marketing efforts out right) which means orders can’t be fulfilled. Unclear how they solve this problem… I remember lots of investors passing on it because of this.

The problem, which this article doesn’t really explain, is that you are not guaranteed the exchange rate or the timing. Transfer point matches your currency exchange with somebody else who wants to trade in the other direction (eg if I want to buy Euro’s with my GBP they need to find someone who wants to buy GBP with their Euro’s). The market could move significantly in the meantime, and you could imagine that very often they will have much more demand from one side or the other (especially if they don’t balance their marketing efforts out right) which means orders can’t be fulfilled. Unclear how they solve this problem… I remember lots of investors passing on it because of this.

http://twitter.com/TDavisTech Taylor

I think your right but looking for to much info about this company in this article. The way I see this going down is they will start off with enough to “float” your exchange with their money because it wont matter what currency they have their “float” money in at first as long as they have enough. Also they are only doing Euro to Pound trading to there isn’t to much risk in that market like some other markets. Once things pick up they shouldn’t have to float to much unless its an obscure currency.

http://twitter.com/transferwise TransferWise

You can set a limit on the exchange rate if you are afraid that it will move significantly. We believe that there will be enough liquidity in the market to support the model with a fast turnaround!

http://www.facebook.com/antony.evans Antony Evans

It’s an interesting idea and I wish you luck with it… you can but learn by trying!!

I guess even at this stage you don’t really know who your core users are going to be, but it feels to me like it would be remarkable if over, for instance, a one week period the flows in either direction were to even out. For instance in the summer you will have UK people purchasing holiday property abroad and at any time you could get currency crises which cause people to want to move their money in one direction. Another big risk is that you get traction on one side of the currency faster than on the other, eg if people in the UK learn about it faster than those in Europe. Some currencies, eg Philippine Peso and the USD, are massively unilateral in the direction of their retail flows.

The normal market mechanism for evening out these discrepancies is the pricing one – but as you are using external price setting this wont be available.

Still if it does become an issue I’m sure you are smart enough to find a solution. I guess you could batch close all outstanding transactions at the end of the day at the market rate – this would still be a significant saving over standard bank rates for customers, and would only be on a percentage of the flow. Alternatively you could trade yourselves on the other side, though you probably aren’t making enough money from the $1 fees to justify this risk…

http://twitter.com/transferwise TransferWise

You can set a limit on the exchange rate if you are afraid that it will move significantly. We believe that there will be enough liquidity in the market to support the model with a fast turnaround!

Yais

I use HiFX. How is this any different?

They both trade at the same rates as banks but undercut them with closer to market rates…

http://twitter.com/transferwise TransferWise

We feel that our service is simpler to use and the fees we charge are noticeably less than HiFX.

Didn’t know it was time for Ubuntu’s new distro update already… or that it would be aptly named “TransferWise”

http://blog.offbeatmammal.com Offbeatmammal

does this actually work in a peer to peer model? do these guys have no cash on hand to act as a buffer between EUR and GBP transfers so unless they can match your transfer with one (or more) going the other way you sit in limbo waiting for the funds to appear?

I use http://www.ozforex.com.au/ as they actually deal with all the currencies I care about and pay no fees … not sure how this new service is better

http://twitter.com/transferwise TransferWise

Are you sure that you have no transaction fees with ozforex and that you are getting intebank rates? If yes then you have a great deal! So far we have found no other service like this.

http://blog.offbeatmammal.com Offbeatmammal

no transaction fees, but not sure it’s interbank rate (always very good re xe.com etc)
they have the advantage at the moment that they support AUD and USD … hopefully TransferWise will add that.

Not quite sure I understand one thing re TransferWise though … is it Peer to peer (ie do we have to wait for you to find a funding transaction going the other way) or do you have funds on hand in either currency to ride the tides in either direction?

I’d like if I could trade Rands, U.S. and Canadian Dollars, and Mexican Pesos. Can’t wait to watch this one grow.

Anonymous

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LeeH

Banks make this difficult and expensive. So-called wire transfers, that take a week, as if there is a stage coach and horses involved.

I use and recommend Xoom.com. It is a little more than Transferwise but is very reliable.

John Petersson

This was tried in the mid-90s in the U.S. by Sonnet Financial – but on the B2B side. It ultimately failed due to several reasons, the main one being a profit margin too low to support the infrastructure required. 15 years later I think this could be successful, but not easy to pull off…